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NJ's biggest utility plans $4B upgrade after Sandy

By GEOFF MULVIHILL Associated Press

Updated:
02/20/2013 01:03:08 PM EST

New Jersey's largest utility company proposed on Wednesday spending $3.9 billion over the next 10 years to protect its electric and gas system against future storms like Sandy, which knocked out power to most of the state.

Newark-based PSE&G said it intends to spend nearly half the money—$1.7 billion —to relocate substations and switches or to fortify them from storm surges. The company also wants to strengthen power distribution lines and make the electrical grid easier to repair.

New Jersey, like other places, has seen more frequent and more damaging storms, including Tropical Storm Irene and an ice storm in 2011. During Superstorm Sandy last year, 2 million of the company's 2.2 million customers lost power. The company says 800,000 would not have been knocked out if the proposed upgrades were in place. And the rest would have had service returned sooner.

"How we live and do business is so dependent on energy that any outage is hard to tolerate," PSE&G Chairman and CEO Ralph Izzo said in a statement. "Sandy was a defining event for all of us. The state's entire energy infrastructure needs to be rethought in light of weather conditions that many predict will continue to occur."

PSE&G serves about three-fourths of New Jersey electrical customers, including many in the suburbs of both Philadelphia and New York City.

The company said ratepayers would see no increases or small ones on their bills so long as the price of producing natural gas and electricity continues to drop.

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As of Nov. 2012, New Jersey power customers paid 15.8 cents per kilowatt hour, well above the 11.9 cent average in the continental U.S. Only four states had a higher average rate.

Almost as soon as PSE&G filed its proposal, the New Jersey Chamber of Commerce gave its support. "Investing in a reliable and resilient energy infrastructure that is better able to withstand powerful and damaging storms like Sandy and other natural disasters will help keep New Jersey competitive and open for business," chamber President and CEO Thomas Bracken said in a statement.

The proposal requires approval of the state Board of Public Utilities. A spokesman said the board cannot comment on matters before it.

Generally, there's an incentive for investor-owned regulated utilities like PSE&G have to invest in large projects such as power plants, transmission lines and substations because that's how they can best increase profits for shareholders.

Regulators allow utilities to earn a greater rate of return—typically around 10 percent—for big capital-intensive projects than for simply delivering electricity. The reason is that regulators need to give utilities an incentive to invest in big-ticket items that could improve the system. New Jersey does not have a set rate of return on infrastructure investments, but rather decides them on a case-by-case basis.

Investors cheer when these projects are allowed because they increase electric rates. But they are not always good news for customers. Even if the proposed project does not raise utility bills, it would keep them from dropping as much as they otherwise would because of cheaper energy generation.

PSE&G's plans call for updating all its substations that were either flooded during Sandy—a storm that caused $250 million to $300 million in damage to the company's infrastructure—or are included in new federal advisory flood maps as areas in danger.

Besides high winds felling trees across the state, Sandy caused havoc for the power company because of the storm surge on the Hudson, Hackensack and Passaic Rivers in northern New Jersey.

Other major projects in the company's plan include more than $1 billion to update gas lines in flood zones and $450 million to update monitoring systems to make it easier to locate the sources of outages.

PSE&G's Izzo has a prominent place in the state, not only as head of one of the state's key companies but as chairman of the Board of Governors for Rutgers University. In that capacity, Izzo has overseen the hiring of a new university president and a reconfiguration of the state's higher education system.

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AP Business Writer Jonathan Fahey in New York contributed to this report.